Although the insurance industry may seem slow to adopt third generation internet technologies (Web3) such as blockchain, many applications are already operating, according to observers of these developments.
"It is not that widespread today," said Marlene Dailey, financial services senior analyst at RSM, an advisory firm covering insurance and several other sectors. "Several companies have piloted proofs of concept regarding blockchain. While capital investments are going down, we still see blockchain deals rising to the levels they were in 2021."
Blockchain is proving particularly well suited to specific event-related insurance issues like parametric insurance coverages, managing FNOL (
With flight cancellation insurance, which is parametric based on a specific event happening, blockchain technology can authenticate those events and speed up claims handling, according to Paul Ricard, partner in the
"That will determine that the flight is canceled and put that information onto the blockchain," he said. "Then you have a smart contract, which is essentially a piece of code that determines an agreement between an insurer and a policyholder who in that case is on that flight. The smart contract is picking up that information and determining, 'Okay, the flight is canceled, therefore, pay a certain amount to that person.'"
Oracles collecting information like a flight cancellation are a key element of smart contracts, which are "self-executing," said Ricard. "This is a piece of code that's written, that could be an agreement between multiple parties if a certain trigger happens. Then an action will be taken or a payment will be made. It's self-executing because it is completely automated."
Making a claim for auto accident damage usually includes going to a repair shop and getting an estimate, then getting reimbursement from the insurer. With Web3 blockchain technology, Ricard said, "That quote of the amount of damage can be distributed, where you could have multiple garages providing different quotes, and you could go for whichever is the cheapest quote, or whichever is the garage that's providing the best type of quote. Again, using decentralized Web3 technology allows you to really gather that information as objectively as possible."
Blockchain is changing how claims are adjudicated, according to Ricard. Specifically for insurance coverage of crypto assets lost to hacking, claims reviewers vote on whether a claim should be paid out. Depending on the terms of the coverage, a certain percentage of the distributed claims assessor workforce must approve the claim for it to be paid. Members of this workforce are rewarded for their work and evaluated for the fairness of their assessments over time, Ricard added.
An insurance industry-backed blockchain consortium has formed to ensure fairness in the use of Web 3 and blockchain technology. The
"We're operating as the referee, and allowing carriers, brokers and reinsurers to set up nodes to integrate them to core systems of record, working with them in working groups to look at multi-party business process challenges where this could be useful," he said. "Then we're moving those initiatives forward to production research."
RiskStream also developed ways to streamline data flow and verification, particularly for FNOL information, according to Schmid. Its RAPID X blockchain-based application communicates information between carriers for parties to an auto accident. This prevents mistakes and keeps the claims information secure, Schmid explained. Beyond that, RAPID X uses a matching algorithm that can reconcile or reverse auto claims being contested by insurers, and has potential for more functions.
"The matching algorithm could be helpful for fraud down the line and fraud detection industry-wide," Schmid said. "Claim resolution and subrogation could be related to this as well."
RAPID X addresses another issue for auto claims, which is the need to transfer titles in a complete loss. Conventionally the title has to be transferred to a salvage company to complete the handling of the claim. On average, this kind of title transfer can take 50 days, according to Schmid. RiskStream is working with CHAMPtitles, an insurtech that uses Web3 to speed up this process, he added.
Also, power of attorney, necessary for insurance surety bonds, for example, can be authenticated using non-fungible tokens (NFTs), the popular blockchain application, according to Schmid. "Verification is necessary in the bond execution process. It's time consuming the way it is today. It's inefficient," he said. "NFTs allow the surety process to move away from an ink and paper approach towards a multi-party business process where power of attorney is verified across a variety of processes and individual personas." Those include sureties, agents, obligees and principals. "It can be verified as the NFT is passed around to different parties," he added.
With NFTs and blockchain available to match and verify contracts and data, insurers can inspire more trust from customers, RSM's Dailey said. Concierge-style service by auto insurers, where "someone comes and picks up your car, gives you the rental and takes your car to get repaired," she explained, is the kind of function where using blockchain to collect information can enhance the customer experience.
"You'll start improving trust and even innovating even more and learning more about what your customer wants," Dailey said. "Insurance being as competitive as a market as it is, retaining customers is key. We're seeing more and more of our clients look to innovate not necessarily just with blockchain, but look for ways to innovate to improve the customer experience, as well as lower costs, and blockchain will allow you to do that."
